Foreign Direct Investment and Productivity Growth

Abstract

China’s phenomenal growth has coincided with substantial inflows of foreign direct investment (FDI) over the past decades. Researchers thus argue that increased inflows of FDI into China might have played an important role in the country’s economic development (Zhang, 1999). The objective of this chapter is to examine whether the growth of inward FDI in the Chinese economy has generated significant productivity spillover effects on domestic firms. In addition, this study also investigates regional variation in spillover effects with the aim of comparing the western, central and coastal regions in China. Furthermore, this chapter also sheds some light on the possible variation in spillover effects before and after the Asian financial crisis in 1997.